IGCSE Travel and Tourism Practice Exam

Which pricing strategy is characterized by selling items at a lower margin to entice the purchase of other higher-priced items?

1. Market skimming pricing

2. Market penetration pricing

3. Loss leader pricing

4. Special offers strategy

The correct answer is: Loss leader pricing

The pricing strategy characterized by selling items at a lower margin to entice the purchase of other higher-priced items is loss leader pricing. This approach involves setting the price of a product or service deliberately low—often below the cost of production—in order to attract customers. The idea is that although the initial product may not yield high profits or even incur a loss, it draws customers in who may then be encouraged to buy more profitable items. Loss leader pricing is commonly used in retail environments, where a store may sell staples or popular products at a significant discount. The hope is that once customers are attracted to the store for the low-priced items, they will also purchase higher-margin items while they are there, thus increasing overall sales and profit. In contrast, market skimming pricing focuses on setting high initial prices for a new product to maximize profits from early adopters before gradually lowering the price. Market penetration pricing involves setting a low price to quickly gain market share, often used for new products to attract a broad customer base. Special offers strategy generally refers to temporary promotions or discounts, but does not inherently focus on the relationship between low-priced items and higher-priced purchases in the same systematic way that loss leader pricing does.